Risk assessment

Growth remains weak

Growth is expected to remain modest in 2018. Despite the persistence of a restrictive fiscal policy, including public tariff increases and aid reductions, household consumption (55% of GDP) is expected to improve. It would benefit, unless the local rouble depreciates significantly, from better control of inflationary pressures related to the establishment of monetary objectives by the central bank. In addition, the minimum wage and remuneration overall could grow more quickly. Exports (63% of GDP) should benefit from the recovery in Russia (by far the main trading partner), other CIS countries, and Ukraine, as well as the eurozone. The increase in Russian oil deliveries, a large share of which is re-exported after refining, will contribute greatly as the main export (30%). The manufacturing industry (25% of GDP), particularly with chemicals (potash fertilisers, plastic), food processing (dairy and meat products), trucks, construction and farming machinery, as well as the steel industry, will also benefit, just like agriculture (8% of GDP with livestock and cereals, which had a good harvest in 2017). Conversely, fiscal policy should continue to weigh on the investment of numerous state-owned companies as well as on building and public works.

A massive, inefficient public sector

Public debt has increased steadily, accounting for more than half of GDP. 89% of the total is in foreign currencies. The guarantees provided to public companies (source of one third of GDP) and public banks (66% of banking assets) by the central government or its local levels alone represent 10% of GDP, reflecting the confusion between the State and public companies. The commercial public sector must make do with a lack of efficiency and instructions from the State that are far from always being relevant. Cleaning up the public sector will be laborious because of budgetary constraints, especially since the State does not seem to have given up on influencing it. Privatisation and reorganisation projects, potentially costly in terms of employment and popularity, have been set aside, postponing the conclusion of a financial programme with the IMF. This attitude is facilitated by the limited recovery of growth and its cooperation with Russia, which has allowed financial resources to be obtained.

External accounts influenced by Russia

After Belarus’s refusal to recognise the annexation of Crimea and accept a Russian military base, Russia used the pretext of the establishment of the Eurasian Economic Union in 2015 to raise gas prices, and then reduce its oil deliveries. An agreement was finally reached in early 2017, putting an end to the costly fall-out for Belarus’s economy. Russia granted an increase in oil deliveries authorised for re-export, a refinancing of gas arrears for USD 700 million, permitted the release of USD 600 million by the Eurasian Fund for Stabilization and Development (EFSD), and promised a loan of USD 1 billion and an additional USD 600 million from the EFSD for 2018. The country was then able to issue euro bonds worth USD 1.4 billion, allowing reserves to be replenished and foreign debt to be serviced (75% of GDP, 30% for solely its public share in April 2017). This debt is the counterpart of a recurring current deficit resulting from a trade deficit not offset by the surplus of services linked to the transit activity, as well as the modesty of foreign direct investments, mainly Russian.

A president playing the confrontation between Russia and the West

President Alexandr Lukashenko, in power since 1994, was re-elected for the fifth time in 2015. Political opposition is anaemic. On the other hand, the social context, calm up to now, has grown more tense since the economic crisis of 2015, brought about by the quarrel with Russia and falling oil prices. Redistribution and increases in income were curbed, while unemployment grew. The reconciliation with Russia, satisfied to see Belarus maintain a certain distance with the West, allows the economic situation to recover to a certain extent, while reducing the social cost of reforms. However, the improvement remains fragile. The sharing with Russia of revenues from exports of oil products processed from oil sold below market price is regularly the subject of disputes, while the deterioration of relations between Russia and the West may complicate Belarus’s balancing. China’s increasing use of the country as a production and export base, as part of its “One Belt One Road” initiative, is a way to diversify the partners.